Arizona Renovation Home Loans

A home renovation loan is a type of financial solution meant to help homeowners manage the costs of home improvement projects. Banks and financial institutions often supply these loans, which might be advantageous for individuals who need immediate funds to cover their renovation needs.

Typically, renovation loans cover electrical and wiring work expenses, painting and remodeling, and more. However, it is essential to note that these loans are typically designed only for renovations, not purchasing furniture or appliances.

Types of Home Renovation Loans in Arizona

There are several home renovation loan programs available in Arizona. Here are the most common programs:

• FHA 203(k) Loans

FHA 203(k) loans are government-insured mortgages enabling borrowers to get a single home purchase and renovation loan. These loans are technically construction loans that finance both the purchase and renovations of a home, encouraging lower-income people to become homeowners by allowing them to upgrade and update older properties as their primary dwellings. They benefit people purchasing a fixer-upper that requires extensive repair and rehabilitation, as they allow buyers to combine the cost of the property and the renovation projects into one loan.

Existing homeowners can also apply for an FHA 203(k) loan to refinance their home and fund future upgrades with a single mortgage. This is particularly useful for homeowners who want to make significant improvements but need more equity to qualify for a home equity loan.

The advantages of Arizona FHA 203(k) loans include the following:

• One Loan for Purchase and Renovation: The FHA 203(k) loan combines the costs of purchasing a property and financing renovations into a single loan, eliminating the need for two separate loans.
• Easier Qualification: FHA 203(k) loans are more straightforward to qualify for than traditional construction and rehabilitation loans.
• Lower Down Payment: FHA 203(k) loans typically have a smaller down payment requirement than conventional loans, making them more accessible to purchasers.
• Refinancing Opportunities: Homeowners can use an FHA 203(k) loan to refinance their property and finance planned renovation costs with a single mortgage.
• Improvement of Older Properties: These loans encourage homeownership among lower-income households by enabling them to renovate and modernize aging properties as their primary residence.
• Simplicity and Cost-Saving: Utilizing a single FHA loan instead of two distinct loans simplifies the financing process and saves money and time.

• 203(k) Limited:

An FHA 203(k) Limited loan, also known as a Streamline 203(k) loan, is a specialized loan that allows homeowners and homebuyers to finance up to $35,000 in repairs, improvements, or upgrades to their property into their mortgage. This 203(k) loan type is designed for minor renovations and non-structural repairs that do not require architectural plans, a consultant, contractor, or HUD consultant.

Here are the general requirements of an FHA 203(k) Limited:

• Credit Score: To qualify for the 3.5% down payment, a credit score of 580 or higher is required.
• Down Payment: Applicants with a credit score of at least 580 are eligible for the utmost loan amount and a 3.5% down payment. Between 500 and 579 credit scores, a 10% down payment is required.
• Debt-to-Income (DTI) Ratio: FHA loan applicants should generally have a total DTI of less than 43%. This means your total monthly debt payments (including mortgage) should be at most 43 percent of your gross monthly income.
• Employment History: FHA loans typically require at least two years of stable and continuous employment. It would be ideal if it were with the same employer.
• Property Requirements: The home must be the borrower’s principal residence and meet specific minimum property requirements. To qualify for a Limited 203(k) loan, renovations must be minor and non-structural.
• Loan Limits: The maximum loan amount for an FHA loan varies by location and is typically a fraction of the median property price in the area. However, the renovation portion of a Limited 203(k) loan is limited to $35,000.

• 203(k) Standard:

An FHA 203(k) Standard loan is a government-insured mortgage intended for significant rehabilitation projects requiring structural improvements, such as room extensions, foundation repairs, or extensive remodeling. Borrowers can combine the costs of property acquisition (or refinancing) and renovation into a single mortgage using this type of loan.

The general eligibility requirements for an FHA 203(k) Standard loan are similar to those for a regular FHA loan, with a few exceptions regarding the nature of the improvements. Here are some of the most critical requirements:

• Property Requirements: The home must be the principal residence of the borrower. In addition, the home must meet HUD’s minimum property standards, and all renovations must adhere to these requirements. The upgrades must be substantial and may involve structural modifications.

• Loan Limits: FHA loan limits are typically a fraction of the area’s median home price and differ by location. There is no specific limit on the renovation portion of a Standard 203(k) loan, but the total loan amount must not exceed the local FHA loan limit.

• Consultant Requirement: Standard 203(k) loans, unlike Limited 203(k) loans, require a HUD consultant. The consultant inspects the property, provides a work report and cost estimate for the project, and oversees the renovation process to ensure HUD compliance.

• VA Home Improvement Loans

A VA home improvement loan is a financial program that allows veterans and active-duty servicemembers to finance home upgrades. It is part of the more extensive VA loan program, which the United States Department of Veterans Affairs supports.

There are two types of VA loans available for home improvements:

• VA Renovation Loan:

This type of financing enables veterans to finance both the purchase of a home and the cost of renovations in a single loan. The purchase price and renovation expenses are combined and jointly funded.

• VA Cash-Out Refinance:

Using a cash-out refinance, veterans who already own a home with a VA loan can obtain a larger loan and use the difference for home improvements. This is a method for financing renovations using existing home equity.

The eligibility conditions for VA home improvement loans are the same as those for the VA loan program as a whole:

• Service Eligibility: You must meet minimum service requirements as a veteran, service member, or eligible spouse. This typically requires a minimum of 90 days of active-duty service during wartime, 181 days during peacetime, or six years in the Reserves or National Guard.

• Certificate of Eligibility: A Certificate of Eligibility (COE) issued by the Department of Veterans Affairs must verify your military service and eligibility for the VA loan program.

• Credit and Income: While the VA does not specify a minimum credit score requirement, most lenders do. Most VA lenders require a minimum 620 credit score to qualify for a VA loan. In addition, the borrower must demonstrate adequate income and a debt-to-income ratio to afford the mortgage payments.

• Occupancy: The property must be your primary residence.

• Property Requirements: The intended improvements must be professionally estimated and planned to qualify for a renovation loan. Once the work is complete, the property must meet VA’s minimum requirements.

• Fannie Mae HomeStyle Loans

A Fannie Mae HomeStyle Loan is a conventional loan made available by Fannie Mae that allows borrowers to fund the purchase of a property and any necessary repairs. This loan is comparable to the FHA 203(k), but it enables borrowers to buy and repair houses that meet conventional rather than FHA loan standards.

The HomeStyle loan can be used for any renovation project, including luxury items such as an outdoor pool, as long as it adds value to the home and is permanently attached to the property.

The eligibility requirements for a Fannie Mae HomeStyle loan include the following:

• Owner-occupied Properties: The borrower must intend to occupy the residence as their principal residence. However, Fannie Mae also allows HomeStyle loans for second residences and investment properties, distinguishing this loan product from others.

• Down Payment: HomeStyle loans require a down payment for owner-occupied properties, typically starting at 5%. Higher down payments may be required for second homes and investment properties.

• Credit Score: A minimum 620 credit score is typically required to qualify for a HomeStyle loan.

• Debt-to-Income Ratio: The debt-to-income ratio (DTI) is considered during the approval process. Even though the precise ratio can vary, a DTI of 45% or less is frequently required. Under certain circumstances, some borrowers may be approved with a higher DTI.

• Loan-to-Value (LTV) Ratio: For single-family homes, the loan-to-value ratio must be 75% or less following renovations. This indicates that the total loan amount is less than or equal to 75% of the estimated after-renovation value of the property.

• Renovation Requirements: Any renovations financed by the loan must be completed within one year of the loan’s inception. Qualified contractors must perform the work and commence within 30 days of the loan’s closing.

• Freddie Mac ChoiceRenovation Loans

Freddie Mac’s ChoiceRenovation loan is a program that helps homebuyers purchase and renovate a property with a single loan or allows existing homeowners to refinance their mortgage and fund renovations. It is comparable to the FHA 203(k) loan and Fannie Mae’s HomeStyle loan, but Freddie Mac backs it.

A ChoiceRenovation loan’s primary characteristics include using the loan for any renovation or repair, including those to repair damage or avoid future damage, such as a new roof or retaining wall. A feature unique to this program is the ability to finance renovations that will help the home adapt to climate change and extreme weather events.

The eligibility requirements for a Freddie Mac ChoiceRenovation include the following:

• Property Types: The ChoiceRenovation loan is available for primary residences, secondary residences, and investment properties. This includes properties with one to four units, condominiums, and manufactured homes that meet Freddie Mac’s requirements.

• Down Payment: The minimum down payment is contingent upon the nature of occupancy and the number of units. The minimum down payment on a single-family primary residence ranges from 3 to 5 percent.

• Credit Score: The minimum credit score required to qualify varies by lender but is typically at least 620. Some lenders require applicants to have a FICO score of 640 or higher.

• Debt-to-Income (DTI) Ratio: While lender-specific DTI requirements can vary, a DTI ratio of 45% or less is typically required to qualify.

• Loan-to-Value (LTV) Ratio: After renovations, the loan-to-value ratio for a single-family primary residence must be 97% or less. This means the total loan amount is less than or equal to 97% of the after-renovation value of the property.

• Renovation Requirements: Renovation costs cannot exceed 75% of the home’s “as-completed” appraised value. A licensed contractor must perform the work unless the borrower can demonstrate they possess the necessary experience and qualifications.

Apply for a Home Renovation Loan in Arizona

Capital Home Mortgage is an excellent option for Arizona people planning home renovations due to its extensive knowledge of various renovation loan options and familiarity with the local housing market. Their seasoned loan officers can guide purchasers through the complexities of loans such as FHA 203(k) and Fannie Mae HomeStyle, ensuring they select the most suitable financing instrument for their requirements. In addition, they provide simplified application procedures and competitive interest rates. In addition, they are familiar with the specific needs of Arizona homebuyers and have established relationships with local contractors and real estate agents, which can be invaluable during the renovation process.

Call the Arizona Renovation Team at (480) 360-6650 for all questions about your home renovation projects.